A slowdown in global economic momentum and renewed sovereign debt issues in peripheral Europe weighed heavily on global equities in the June quarter. Industrial output slowed from the first quarter as shortages of automotive and electronics components imported from Japan developed. Leading indicators including the manufacturing and services Purchasing Manager Index (PMI) weakened in the quarter, suggesting that economic momentum had slowed from previous quarters. In emerging economies, policymakers continued to tighten monetary policy to combat inflation.

There was also not much positive news to emanate from Europe. Apart from posting a strong first quarter GDP result, leading indicators suggested that output in the second quarter would slow. Greece was under considerable pressure as there were concerns of a sovereign debt default. Importantly, economic growth in the US slowed in the first quarter of this year after expanding strongly in the previous quarter.

In Australia, the S&P ASX200 Index was down 4.5% for the quarter, but up 7.1% on an annual basis. The defensive sectors performed strongly in the quarter as risk aversion saw investors rotate out of cyclical stocks.

To read more, download a PDF version of this report: Quarterly Economic and Market Commentary July 2011